SsangYong Motor’s Pre-packaged Bankruptcy Plan Hits Sang

SsangYong Motor has got one step closer to a court receivership as its pre-packaged bankruptcy plan (P-Plan) hit a snag.

Choi Dae-hyun, senior vice president of Korea Development Bank (KDB), said at an online press conference on Feb. 2 that the potential investor left Korea on Jan. 31 without making a final decision on the P-Plan. The potential investor is U.S. auto retailer HAAH Automotive. "If we cannot implement the P-Plan due to its poor business feasibility, we expect that SsangYong Motor will inevitably go through a normal rehabilitation procedure," he said.

The P-Plan is a card presented by SsangYong Motor as a breakthrough after the collapse of negotiations between Mahindra & Mahindra of India, the largest shareholder of SsangYong Motor, and HAAH Automotive. Mahindra & Mahindra intends to sell off its stake to a new investor and withdraw from SsangYong.

If the P-Plan is implemented, the court will quickly reduce the automaker’s current debts to allow creditors to inject new funds into it. Although SsangYong Motor planned to graduate from court receivership in a short period of time through this arrangement, it failed to attract a new investor and obtain creditors' agreement to reduce existing debts. Therefore, SsangYong Motor is being pushed to the edge of a cliff.

KDB says that it will be able to provide additional support only when Ssangyong Motor prepares a rehabilitation plan that guarantees future business feasibility. Securing future business feasibility is none other than attracting a new investor. However, as HAAH Automotive remains noncommittal about fresh investment, KDB cannot decide to provide additional support to the ailing carmaker.

However, if SsangYong Motor goes under, KDB is likely to be blamed for its demise. Yet a bank official said that the blame should go tot the largest shareholder, Mahindra & Mahindra. "If a contract to attract new investment is scratched off, the largest shareholder and SsangYong Motor should come up with ways to normalize management on their own."